Techies are poised to lead economic recovery

Aug 19th 2009

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Technology executives believe that the technology sector will recover from the current economic crisis substantially more quickly than the U.S. economy, with senior business leaders expecting improved revenue and profitability in 2010 and about half seeing an improved job picture, according to the results of a recent survey of hardware and software company executives conducted by KPMG LLP, the audit, tax, and advisory firm.

In the KPMG survey, two-thirds of these senior technology executives said they thought their industry would fully recover from the current economic crisis ahead of the overall U.S. economy. Silicon Valley-based executives were even more bullish - 77 percent expect the technology sector's recovery to outpace the U.S. recovery. About 43 percent of the technology leaders surveyed expect the U.S. economy to recover after 2010 while 39 percent predict the economy will recover by next year.

Eight out of 10 executives surveyed said they expect business conditions in the technology sector to improve in 2010, with 78 percent expecting stronger revenue and 72 percent expecting improved profitability.

"The results are in line with recent earnings reports in the technology sector which suggest business conditions are starting to improve," said Gary Matuszak, partner, global chair and U.S. leader for KPMG's Information, Communications & Entertainment practice. "There are also reports of software industry sales expanding five to ten percent annually after the recession, so while it's far from blue skies in the industry, the worst seems to be behind us," said Matuszak.

The KPMG survey asked the executives to indicate if their strategic focus was on cost cutting or investing for long-term growth. The results show that most technology executives are focused on building the business with 69 percent indicating they are placing emphasis on long-term growth versus 31 percent who said they are focused on cost cutting.

EMPLOYMENT PICTURE SLIGHTLY BRIGHTER

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When asked how they responded to the economic downturn in the past year, the most frequently cited action was reducing headcount (68 percent). Only 14 percent of respondents said they are planning or considering further reductions in 2010. In fact, technology executives are fairly optimistic about the industry employment picture in 2010, as 49 percent expect it to be better.

The second most frequent action cited in response to the downturn was cutting capital expenses (60 percent said they already had done so and 28 percent are considering or planning cuts). When asked what else they would do to adjust to the downturn in 2010, 42 percent of executives said they were creating or modifying risk management plans and another 42 percent said they were looking at implementing IT solutions to reduce operating costs.

IMPROVED CONFIDENCE CRITICAL TO RECOVERY

When asked to identify the top three triggers they think will spur an economic recovery, 42 percent of the technology executives cited improved business confidence, 41 percent said improved consumer confidence, and 32 percent said an improved job market. Increased consumer spending was fourth (30 percent) but was most frequently cited by the hardware technology company executives (39 percent).

The three triggers cited least frequently were effective regulation (6 percent), government stimulus spending (5 percent) and the government bailouts (4 percent).

BIGGEST CHALLENGES TO RECOVERY

When asked to identify the biggest challenges they currently face in dealing with the economic downturn, the executives most frequently said finding new sources of revenue (66 percent), managing costs and restoring business confidence (42 percent each), and adjusting to changing customer demand (37 percent).

THE KPMG INDUSTRY PULSE SURVEY

The KPMG survey was conducted from May through July of 2009 and reflects the responses of about 130 CEOs and other C-level suite executives in the hardware and software computer industry. Of the 130 respondents, 33 are companies with revenues exceeding $1 billion, 22 are companies with revenues in the $250 million-$1 billion range, and 75 are companies with revenue below $250 million. Clarion Research Inc. conducted the survey and compiled the data.